The world is still heavily dependent on fossil fuels, and the short-term growth may continue

On October 4, market analyst Noah Browning wrote that coal and natural gas demand has exceeded the highest level before the epidemic, and demand for crude oil is similar. People had hoped that the epidemic would promote the transition from fossil fuels to clean energy, and it seems that this hope has also suffered setbacks.

The world still relies heavily on fossil fuels

The global shortage of natural gas, record prices of natural gas and coal, and oil prices reaching three-year highs all show that market demand for energy has risen sharply, and the world still needs fossil fuels to meet most of the energy demand .

The coal consumption in different regions in 2020, we can see that the overall situation is still rising



Cuneyt Kazokoglu, head of oil demand analysis at the energy consulting company FGE, said that the decline in demand during the epidemic was entirely related to the government's lockdown measures and has nothing to do with the energy transition. Energy transition and decarbonization will take 10 years, and this strategy will not be achieved overnight.

The International Energy Agency, an energy watchdog, pointed out that more than three-quarters of the world's energy needs are still provided by fossil fuels, and less than one-fifths rely on non-nuclear renewable energy sources.

Rystad Energy lists forecasts for LNG demand in different regions of the world



Mckinsey's natural gas demand forecast



The energy transition policy has also come under fire for rising energy prices. In Europe, policies to reduce carbon emissions have led to high coal prices, making public utilities reluctant to use coal-fired power generation to alleviate power shortages.

However, several factors mean that temporary energy shortages may not last, such as OPEC's decision to increase production, and LNG prices have experienced years of downturns, which have led to an increase in supply due to price increases.

Renewable energy is a solution to energy shortage, not the cause of energy shortage

The economic recovery caught natural gas, coal and oil producers by surprise, but it was largely stimulated by the government's increased spending on energy-intensive industries.

2019, the timetable for the recovery of global oil demand in the second and third quarters of 2022



The Director-General of the International Energy Agency Birol said that the energy crisis should not be blamed on the energy transition policy. A well-managed clean energy transition is a solution to skyrocketing natural gas and electricity prices, not a trigger.

Data from the International Energy Agency shows that the global demand for coal in 2020 exceeds the level before the epidemic. Global coal demand is expected to grow by 4.5% this year, exceeding the level of 2019. In 2020, global natural gas demand will fall by 1.9%, which is a small drop compared with other energy sources. However, the International Energy Agency predicts that natural gas demand in 2021 will increase by 3.2% to more than 4 trillion cubic meters.

Consulting firm Rystad Energy said the cold weather in the northern hemisphere has increased the demand for coal, liquefied natural gas and electricity.

According to data from the four main tracking organizations, oil demand will return to pre-epidemic levels in 2022, exceeding 100 million barrels per day. The high oil price is due to OPEC+'s record cuts in supply during the epidemic in order to meet the sharp decline in transportation fuel demand, and millions of barrels of oil are still being stopped every day.

Comparison of different agencies' forecasts of global oil demand before the fourth quarter of 2022



OPEC has given the strongest forecast for rising oil demand, setting the recovery date in the second quarter of 2022. In the more distant future, as most forecasters predict that fossil fuel demand will peak in the next 20 years (as shown in the figure below), and the International Energy Agency also recommends that no new projects should be built to ensure net zero emissions. A larger supply gap may lead to More price shocks.



Nikos Tsafos, a senior researcher at the Center for Strategic and International Studies (CSIS), said: "The price of fossil fuels will continue to fluctuate. In a shrinking market, the risk of imbalance between supply and demand is greater. In this market, further Insufficient reasons for investment may cause prices to continue to rise in the short term."



Based on the above information, we can see that the world is still very dependent on fossil fuels. Renewable energy is only a supplement and cannot replace the status of fossil fuels. In the case of a rebound in demand, it is expected that energy prices, including oil, will remain high and fluctuate. It is not ruled out that further increases are possible. Investors need to keep an eye on this.

(Daily chart of Brent crude oil main contract)

At 14:02 on October 5th, GMT+8, the main contract price of Brent crude oil was quoted at US$81.43/barrel.